I just tried it out yesterday (had to increase the view distance) and it seems to work perfectly for the AI soldiers - I remember falling to the ground, thinking how the hell that guy could take me down with one shot from about 2 kilometers, then I heard the shot, a few seconds later. The HEIAP rounds work well as player (although there's some sort of weird lag after firing) - and I had no success in using the standard rounds (that's why I lost that sniper duel very fast - I missed by about 10 meters, although my reticule was placed on the soldier's center.) My AI group member was good at it again, though - he took out that officer holding a civilian hostage with one well-placed shot.
And about the lighting issue - so far, I have only used the MLOD format for my models (I plan on converting most of them for a mod project), so I don't really know which utilities are fit for lossless converting.